UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

Commission File Number 0-27307

M&F BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

North Carolina	56-1980549
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2634 Durham-Chapel Hill Blvd., P.O. Box 1932, Durham, North Carolina 27707

(Address of principal executive offices)

(919) 683-1521

(Issuer’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

State the number of shares outstanding of each of the issuer’s class of common equity, as of the latest practicable date:

Common Stock no par value    842,823

Outstanding at October 28, 2004

Transitional Small Business Disclosure Format (Check one):    Yes  ¨    No  x

M&F BANCORP, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION (unaudited)
Item 1.	Consolidated Condensed Financial Statements
	Consolidated Condensed Balance Sheets as of September 30, 2004 and December 31, 2003	3
	Consolidated Condensed Statements of Income for the nine-month periods ended September 30, 2004 and September 30, 2003	4
	Consolidated Condensed Statements of Income for the three-month periods ended September 30, 2004 and September 30, 2003	5
	Consolidated Condensed Statements of Shareholders’ Equity for the nine-month periods ended September 30, 2004 and September 30, 2003	6
	Consolidated Condensed Statements of Cash Flows for the nine-month periods ended September 30, 2004 and September 30, 2003	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Controls and Procedures	19
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
Signature Page		22-26

2

PART I: FINANCIAL INFORMATION

ITEM 1 Financial Statements

M&F BANCORP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands)

	September 30, 2004 (Unaudited)			December 31, 2003 (Audited)
ASSETS
Cash and amounts due from financial institutions	$	7,420		$	11,439
Interest-earning deposits in financial institutions		11,042			14,420
Cash and cash equivalents		18,462			25,859
Securities available for sale		28,450			30,615
Securities held to maturity		385			884
Loans:
Commercial, financial and agricultural loans		106,568			94,978
Real estate-construction loans		12,950			7,429
Real estate-mortgage loans		40,391			40,526
Installment loans to individuals		7,295			7,932
Total Loans		167,204			150,865
Unearned income		(596	)		(620	)
Allowance for loan losses		(2,598	)		(2,276	)
Net loans		164,010			147,969
Premises and equipment, net		6,780			6,320
Other assets		8,609			8,563
TOTAL ASSETS	$	226,696		$	220,210
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Interest-bearing deposits		156,335			148,055
Non-interest-bearing deposits		34,735			37,843
Total Deposits		191,070			185,898
Other borrowings		11,809			11,829
Other liabilities		3,477			3,066
Total liabilities		206,356			200,793
Shareholders’ Equity:
Common stock, no par value, authorized 5,000,000 shares; issued and outstanding 842,823		5,892			5,892
Retained earnings		14,341			13,350
Accumulated other comprehensive income		107			175
Total shareholders’ equity		20,340			19,417
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	226,696		$	220,210

See notes to consolidated condensed financial statements.

3

M&F BANCORP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(unaudited)

(in thousands, except per share data)

Nine months ended:	September 30, 2004		September 30, 2003
Interest income:
Interest on loans	$	8,382	$	8,146
Securities:
Taxable		395		441
Tax exempt		286		303
Other interest		75		103
Total interest income		9,138		8,993
Interest expense:
Interest on deposits		1,863		2,092
Interest on federal funds & borrowings		455		460
Total interest expense		2,318		2,552
Net interest income		6,820		6,441
Provision for loan losses		345		375
Net interest income after provision for loan losses		6,475		6,066
Non-interest income		2,189		1,533
Salaries & employee benefits		4,167		4,001
Other non-interest expense		2,779		2,146
Income before taxes		1,718		1,452
Income tax expense		476		461
Net income	$	1,242	$	991
Earnings per common share:
Basic	$	1.47	$	1.18
Diluted	$	1.44	$	1.18
Weighted average common shares outstanding:
Basic		843		843
Diluted		865		843
Dividends per common share	$	0.30	$	0.27
Proforma Effect of the Declared 100% Stock Dividend:
Average Shares of Common Stock:
Basic		1,686		1,686
Diluted		1,730		1,686
Earnings Per Share of Common Stock:
Basic		.74		.59
Diluted		.72		.59
Cash Dividend Per Share of Common Stock		.15		.14

See notes to consolidated condensed financial statements.

4

M&F BANCORP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(unaudited)

(in thousands, except per share data)

Three months ended:	September 30, 2004		September 30, 2003
Interest income:
Interest on loans	$	2,894	$	2,703
Securities:
Taxable		127		129
Tax exempt		90		85
Other interest		31		43
Total interest income		3,142		2,960
Interest expense:
Interest on deposits		663		690
Interest on federal funds & borrowings		152		150
Total interest expense		815		840
Net interest income		2,327		2,120
Provision for loan losses		119		125
Net interest income after provision for loan losses		2,208		1,995
Non-interest income		1,104		502
Salaries & employee benefits		1,478		1,310
Other non-interest expense		946		677
Income before taxes		888		510
Income tax expense		261		110
Net income	$	627	$	400
Earnings per common share:
Basic	$	0.74	$	0.47
Diluted	$	0.73	$	0.47
Weighted average common shares outstanding:
Basic		843		843
Diluted		865		843
Dividends per common share	$	0.10	$	0.09
Proforma Effect of the Declared 100% stock dividend:
Average Shares of Common Stock:
Basic		1,686		1,686
Diluted		1,730		1,686
Earnings Per Share of Common Stock:
Basic		.37		.24
Diluted		.37		.24
Cash Dividend Per Share of Common Stock		.05		.05

See notes to consolidated condensed financial statements.

5

M&F BANCORP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

(in thousands)

	September 30, 2004			September 30, 2003
Beginning balance, January 1	$	19,417		$	18,187
Net income		1,242			991
Changes in fair value of securities, net of tax		(66	)		78
Dividends		(253	)		(228	)
Ending Balance, September 30	$	20,340		$	19,028

See notes to consolidated condensed financial statements.

6

M&F BANCORP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Nine months ended:	September 30, 2004			September 30, 2003
Cash flows from operating activities:
Net income	$	1,242		$	991
Adjustments to reconcile net income to net cash from operating activities:
Provision for possible loan losses		345			375
Depreciation and amortization		237			218
Deferred income taxes		(409	)		(11	)
(Gain)(loss) on disposal of assets		(107	)		9
Deferred loan fees		24			(26	)
Income taxes receivable		550			(253	)
Interest receivable		(78	)		(250	)
Other assets		(119	)		(233	)
Other liabilities		552			(116	)
Net cash provided by operating activities		2,237			954
Cash flows from investing activities:
Proceeds from sales, calls and maturities of securities (AFS)		5,654			12,182
Purchase of securities (AFS)		(3,500	)		(8,525	)
Net increase in loans		(16,041	)		(10,701	)
Purchase of premises and equipment		(647	)		(331	)
Net cash provided by (used in) investing activities		(14,534	)		(7,375	)
Cash flows from financing activities:
Net (decrease) increase in demand and savings deposits		(2975	)		15,217
Net (decrease) increase in certificates of deposit		8148			10,181
Proceeds from FHLB Borrowings		—			—
Repayment of FHLB Borrowings		(20	)		(4,718	)
Cash dividends		(253	)		(228	)
Net cash provided by financing activities		4,900			20,452
Net (decrease) increase in cash and cash equivalents		(7,397	)		14,031
Cash and cash equivalents at the beginning of the period		25,859			5,878
Cash and cash equivalents at the end of the period	$	18,462		$	19,909

See notes to consolidated condensed financial statements.

7

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The consolidated condensed financial statements include the accounts and transactions of M&F Bancorp, Inc. (the “Company”) and its wholly-owned bank subsidiary, Mechanics & Farmers Bank (“M&F Bank”). All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and instructions from Regulation S-B.

The consolidated condensed financial statements included herein should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003.

In the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows in the accompanying unaudited consolidated financial statement.

2. Loans and Allowance for Possible Loan Losses

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in process of collection. In all cases, loans are placed on non-accrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on non-accrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for possible loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines

8

the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

3. Earnings Per Share

Earnings per share are calculated on the basis of the weighted-average number of common shares outstanding. For the three and nine-month periods ended September 30, 2004 and September 30, 2003, 82,200 and 82,200 stock options, were included in the computations of diluted earnings per share because the impact is dilutive due to the option prices being less than the market price.

4. Regulatory Capital Requirements

The Company is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. As of September 30, 2004 and December 31, 2003, the capital levels are as indicated below:

	Capital
	Risk Based		(a) Tier 1		(b) Tier 1		Minimum Required Capital
September 30, 2004	12.04	%	10.53	%	8.52	%	6.00	%
December 31, 2003	12.82	%	11.23	%	8.65	%	6.00	%

a) to risk weighted assets

b) to average assets

5. Common Stock Cash Dividends

On March 10, 2004, the Board of Directors of the Company declared a quarterly cash dividend of $0.10 per share to all shareholders of record on April 2, 2004 payable April 9, 2004. The dividend reduced shareholders’ equity by $84,282.

On June 17, 2004, the Board of Directors of the company declared a quarterly cash dividend of $0.10 a share to all shareholders of record on July 2, 2004 payable on July 9, 2004. This dividend reduced shareholders’ equity by $84,282.

On September 22, 2004, the Board of Directors of the company declared a quarterly cash dividend of $0.10 a share to all shareholders of record on October 4, 2004 payable on October 11, 2004. This dividend reduced shareholders equity by $84,282.

6. Pro Forma Net Income with Stock Option Compensation Costs Determined Using Fair Value Method

The Company accounts for compensation costs related to the Company’s employee stock option plan using the intrinsic value method. Therefore, no compensation cost has been recognized for stock option awards because the options are granted at exercise prices based on the market value of the Company stock on the date of grant. Had compensation cost for the Company’s employee stock option plan been determined using the fair value

9

method, the Company’s pro forma net income and earnings per share for the three and nine-month periods ended September 30, 2004 and 2003 would have been as follows (in thousands):

	Three Months Ended September 30						Nine Months Ended September 30
	2004			2003			2004			2003
Net income:
As reported	$	627		$	400		$	1,242		$	991
Deduct – total stock based employee compensation expense determined under fair value based method for all awards, net of income taxes		(3	)		(3	)		(9	)		(10	)
Pro forma	$	624		$	397		$	1,233		$	981
Basic earnings per share:
As reported	$	0.74		$	0.47		$	1.47		$	1.18
Pro forma	$	0.74		$	0.47		$	1.46		$	1.16
Diluted earnings per share:
As reported	$	0.73		$	0.47		$	1.44		$	1.18
Pro forma	$	0.72		$	0.47		$	1.42		$	1.16

7. Loan Commitments

In the normal course of business, the Bank has various commitments to extend credit, which are not reflected in the financial statements. At September 30, 2004 and December 31, 2003, the Bank had outstanding loan commitments of approximately $42,020,000 and $29,975,000, respectively. Commitments under standby letters of credit amounted to approximately $1,600,000 and $1,090,000 at September 30, 2004 and December 31, 2003, respectively. These letters of credit represent agreements, whereby the Bank guarantees to lend funds to customers up to a predetermined maximum amount.

The bank approves lines of credit to customers through home equity and overdraft protection loans. At September 30, 2004 and December 31, 2003, in addition to actual advances made on such loans, the Bank’s customers have available additional lines of credit on home equity and consumer overdraft protection loans. Available amount on home equity lines at September 30, 2004 and December 31, 2003 were $1,383,000 and $1,268,000, respectively. In addition, consumer overdraft protections loans had available lines of credit of $2,204,000 and $858,000 as of September 30, 2004 and December 31, 2003.

8. New Accounting Standards

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The objective of this interpretation is to provide guidance on how to identify a variable interest entity (“VIE”) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation became effective for the Company in 2003 for special purpose entities and VIE’s previously accounted for under FIN 46. The effective date of FIN 46 for other entities will be for reporting periods ending after December 15, 2004. The adoption of FIN 46 did not have an impact on the Company’s financial position and results of operations.

10

In October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions,” which provides guidance on the accounting for the acquisition of a financial institution and supersedes the specialized accounting guidance provided in SFAS No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions.” SFAS No. 147 became effective upon issuance and requires companies to cease amortization of unidentified intangible assets associated with certain branch acquisitions and reclassify these assets to goodwill. SFAS No. 147 also modifies SFAS No. 144 to include in its scope long-term customer-relationship intangible assets and thus subject those intangible assets to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions required for other long-lived assets.

Although SFAS No. 147 may affect how future business combinations, if undertaken, are accounted for and disclosed in the financial statements, the issuance of the new guidance had no effect on the Company’s results of operations or financial position because the Company does not have any assets subject to the specialized accounting guidance provided in SFAS No. 72 or SFAS No. 147.

In December 2003, the Financial Accounting Standards Board (FASB) issued revised Statement of Financial standards (SFAS) No. 132 “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This Statement retains the disclosures required by SFAS No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the extent practicable and required additional information on changes in the benefit obligations and fair values of plan assets. Under revised SFAS No. 132, additional disclosures of the types of plan assets, investment strategy, measurement dates, plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods are required. This Statement is effective for financial statements with fiscal years ending after December 15, 2003. We have adopted revised SFAS No. 132 and included the additional disclosures in note 9 to our condensed consolidated financial statements.

9. Benefit Plans

The Company and its subsidiary have a non-contributory defined benefit retirement (pension) plan for substantially all full-time employees. The Company also has supplementary defined benefit pension plans that provide benefits to higher-level employees. During the first nine months of 2004, we have made contributions of $81,000 and expect to contribute approximately $26,000 the remainder of 2004.

The components of the net periodic benefit cost for the nine months ended September 30 are:

	Pension Benefits (in thousands)						Other Executive Retirement Benefits (in thousands)
	2004			2003			2004		2003
Service Cost	$	72		$	56		$	47	$	38
Interest Cost		166			162			92		75
Expected Returns on Plan Assets		(200	)		(147	)		—		—
Amortization of prior service cost		(23	)		(24	)		58		70
Amortization of net loss		17			49			24		1
Net Periodic Cost	$	32		$	95		$	221	$	185
Additional Cost (benefit) / Recognition		—			—			—		—
Net Periodic Cost / benefit recognized	$	32		$	95		$	221	$	185

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10. Subsequent Events

The Company elected to outsource human resource department functions effective October 4, 2004. Two internal positions were eliminated and the functions will be performed by external service providers. All service provider agreements will be on a month-to-month basis with the ability to terminate services with a thirty-day notice.

In November 2004 the Board of Directors approved a ten cent($.10) per share quarterly cash dividend. Each shareholder of record at the close of business on December 15, 2004 is entitled to receive $.10 for each share of stock on the record date. The payment date is January 7, 2005.

In November 2004 the Board of Directors also approved a 100% stock dividend. Each shareholder of record at the close of business on December 20, 2004 is entitled to receive one Additional share of stock for each share of stock owned on the record date. The payment date is January 10, 2005.

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The accounting and reporting policies of the Company and its subsidiary are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry.

Certain accounting policies require us to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. Two of the more critical accounting and reporting policies include the Company’s accounting for the allowance for possible loan losses and pension costs. The estimates and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.

Allowance for Possible Loan Losses

The allowance for possible loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

12

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owned. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance loans are collectively evaluated for impairment based on estimates of charge-off trends, expected default rates, general economic conditions and overall portfolio quality. The evaluation of collectability of the loan portfolio is inherently subjective as it requires material estimates and projections of future changes that could negatively affect a borrower’s ability to repay, such conditions could result in material adjustments to the allowance for loan losses that could adversely impact earnings in future periods.

See “Non-performing assets and allowance for loan losses” herein for a complete discussion.

Pension Plans

The Company maintains a qualified defined benefit cash balance pension plan (the “Qualified Plan”), which covers substantially all full time employees and an unfunded excess plan to provide benefits to a select group of highly compensated employees. The excess plan provides benefits that would otherwise be provided under the Qualified Plan but for maximum benefit and compensation limits applicable under the tax law.

The benefit cost and obligation are dependent on assumptions used by actuaries in calculating such amounts. The assumptions include discount rates, inflation, salary growth and long-term return on plan assets.

Please also refer to Note 1 in the “Notes to Consolidated Financial Statements” in the Company’s Annual Report for the year ended December 31, 2003 on Form 10-KSB on file with the Securities and Exchange Commission for details regarding all of the Company’s critical and significant accounting policies.

General

The following discussion and analysis of earnings and related financial data should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Annual Report on Form 10-KSB for the year ended December 31, 2003. It is intended to assist you in understanding the financial condition and the results of operations for the three and nine months ended September 30, 2004 and 2003.

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Forward-Looking Statements

When used in this report, the words or phrases “will likely result,” “should,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or other similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above and other factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or occurrences after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by regulation.

Executive Overview

The Company generated the majority of its earnings in the third quarter of 2004, from traditional banking services- lending and deposit services. In the opinion of management, the Company had a successful third quarter of 2004 given the current interest rate environment. During the first nine months of 2004, the Company continued to target commercial business in an effort to diversify the customer base and increase variable-rate products. The Company also concentrated efforts to attract long-term deposits.

As management looks forward there are several key challenges that the Company will face, namely:

• Improving operating efficiency

• Intense competition

• Increased costs to comply with the requirements of Sarbanes-Oxley

• Economic environment of local markets

• Improving Liquidity

The Company will continue to rely on its emphasis on quality personal services and enhanced technology to meet these challenges. The Company has developed both long-term and short-term strategic objectives to obtain profitable growth. Management will continually monitor and modify these objectives as the industry changes. The Company will also explore expansions of services as it seeks to increase fee revenue.

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Financial Condition

Total assets increased 3.18 percent to $227,000,000 at September 30, 2004 from $220,000,000 at December 31, 2003 primarily due to a $5.17 million increase in deposits.

Total loans increased 10.83 percent to $167,200,000 at September 30, 2004 from $150,900,000 at December 31, 2003. The increase resulted from normal business operations partially offset by a $3.2 million sale of residential mortgages in the secondary market.

The investment portfolio balance as of September 30, 2004 was $28,835,000 compared to $31,499,000 at December 31, 2003. Maturing investment securities and cash and cash equivalents were used to fund loan demand and satisfy liquidity needs. Approximately 98.66 and 97.20 percent of the portfolio was classified as available-for-sale at September 30, 2004 and December 31, 2003, respectively. All securities purchased during 2004 and 2003 were classified as available-for-sale.

Deposits increased 2.78 percent to $191,070,000 at September 30, 2004 from $185,898,000 at December 31, 2003. The majority of the increase resulted from special certificate of deposit promotion offered to improve the Bank’s liquidity position.

Total shareholders’ equity increased 4.75 percent to $20,340,000 as of September 30, 2004 from $19,417,000 at December 31, 2003. The increase was primarily due to year-to-date net income of $1,242,000 offset by the quarterly dividends paid and an increase in accumulated other comprehensive income.

Results of Operations - Comparison for the three and nine months ended September 30, 2004 and 2003.

Net income for the nine months ended September 30, 2004 increased 25.33 percent to $1,242,000 compared to $991,000 for the same period in 2003. the significant increase was due to a $439,249 grant the Company received in August 2004 through the Bank Enterprise award (BEA) Program, a program of the Community Development Financial Institution (CDFI). The CDFI Fund supports financial institutions around the country that are dedicated to financing and supporting community and economic development activities. The BEA Program complements the community development activities of insured depository institutions by providing financial incentives to expand service within economically distressed communities. Total interest income was $9,138,000 for the nine months ended September 30, 2004 compared to $8,993,000 for the comparable period in 2003.

Interest income on loans increased $236,000 primarily due to an increase in the average loans outstanding to $160,680,000 from $146,115,000 for the nine months ended September 30, 2004 and 2003, respectively, partially offset by a decline in yield from 7.60 percent to 6.92 percent. Interest income on securities decreased 8.47 percent when comparing the nine months ended September 30, 2004 with the same period in 2003. This decrease was the result of a lower yield on securities. The yield on the securities portfolio for the period ended September 30, 2004 declined 60 basis points compared to a yield of 3.86 percent for the same period in 2003.

Total interest expense decreased 9.17 percent to $2,318,000 for the nine months ended September 30, 2004 from $2,552,000 for the nine months ended September 30, 2003. The decrease in interest expense is primarily the result of time deposits repricing during the nine months ended September 30, 2004 at significantly lower rates. The rates paid on interest bearing

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deposits were approximately 1.69 percent for the nine months ended September 30, 2004 as compared to 2.04 percent, for the comparable period in 2003. Recently the Bank has utilized a deposit acquisition program with a CD listing service. It is anticipated that interest expense may increase when these deposits are subject to renewal.

During the nine months ended September 30, 2004, the Company decreased the loan loss provision 8.00 percent or $30,000 as compared to the nine months ended September 30, 2003 of $375,000. The decrease in the provision for loan losses is the result of management’s assessment of the Company’s delinquency ratios, non-performing assets, charge-off history, composition of loans in the portfolio.

Non-interest income during the nine months ended September 30, 2004 increased 42.79 percent to $2,189,000 from $1,533,000 for the same period in the prior year. This is primarily due to recognition of $439,000 from a BEA grant in 2004 as discussed previously. Non-interest expense increased 13.00 percent from $6,147,000 during the nine months ended September 30, 2003 to $6,946,000 during the nine months ended September 30, 2004. This is primarily the result of $254,000 in audit fees expensed through the first nine months of 2004, an increase of $214,000 over the same period in 2003. Also occupancy expense increased $268,000 from $748,000 in 2003 to $1,016,000 in 2004.

Net income for the three months ended September 30, 2004 increased 56.75% to $627,000 compared to $400,000 for the same period in 2003, primarily as a result of the receipt of the BEA grant of $439,249 the Company received in August 2004. Total interest income was $3,142,000 for the three months ended September 30, 2004 compared to $2,960,000 for the comparable period in 2003. The primary reason for the increase was attributed to the increase in interest income on loans of $191,000.

Interest income on loans increased $191,000 due to an increase in the loans outstanding to $167,204,000 from $150,865,000 for the three months ended September 30, 2004 and 2003, respectively, partially offset by a decline in yield from 7.46 percent to 6.92 percent. Interest income on securities increased 1.40% when comparing the three months ended September 30, 2004 with the same period in 2003. The yield on the securities portfolio for the three months ended September 30, 2004, decreased 25 basis points compared to a yield of 3.26 percent for the same period in 2003.

Total interest expense decreased 2.98 percent to $815,000 for the three months ended September 30, 2004 from $840,000 for the three months ended September 30, 2003. The decrease in interest expense is primarily the result of time deposits repricing during the three months ended September 30, 2004 at significantly lower rates. The rates paid on time deposits were approximately 1.72 percent for the three months ended September 30, 2004 as compared to 1.97 percent, for the comparable period in 2003.

During the three months ended September 30, 2004, the Company decreased the loan loss provision 4.80 percent from $125,000 during the three months ended September 30, 2003 to $119,000. The decrease in the provision for loan loss is the result of management’s assessment of the Company’s delinquency ratios, non-performing assets, charge-off history and composition of loans in the portfolio.

Non-interest income during the three months ended September 30, 2004 increased 119.92 percent to $1,104,000 from $502,000 for the same period

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in the prior year due to an $113,000 gain on loan sale and $439,249 recognized from a BEA grant. Non-interest expense increased 21.99 percent from $1,987,000 during the three months ended September 30, 2003 to $2,424,000 during the three months ended September 30, 2004. The increase in this category was primarily due to increased audit costs, pension expense, and occupancy costs.

Non-performing assets and allowance for loan losses

The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the types and qualities of the Company’s loans. Management considers such factors as the repayment status of a loan, the estimated net realizable value of the underlying collateral, the borrower’s ability to repay the loan, current and anticipated economic conditions which might affect the borrower’s ability to repay the loan and the Company’s past statistical history concerning charge-offs. The September 30, 2004 allowance for loan losses was $2,598,000 or 1.55 percent of total loans outstanding compared with $2,276,000 or 1.51 percent of total loans outstanding at December 31, 2003. The loan loss allowance, as a percentage of total loans, increased based on the result of management’s assessment of the Company’s delinquency ratios, charge-off history and composition of loans in the portfolio. Management also considered non-performing assets and total classified assets in establishing the allowance for loan losses.

The ratio of non-performing assets to total assets is one indicator of the exposure to credit risk. Non-performing assets of the Company consist of non-accruing loans, accruing loans delinquent 90 days or more, restructured loans, and foreclosed assets which have been acquired as a result of foreclosure or deed-in-lieu-of foreclosure. The following table provides certain information regarding non-performing assets.

	09/30/04			12/31/03
	(Dollars in Thousands)
Non-Accruing Loans	$	1,419			1,009
Accruing Loans Delinquent 90 days or more		461			725
Foreclosed Assets		190			214
Restructured Loans		—			500
Total Non-Performing Assets	$	2,070		$	2,448
Percentage of total assets		0.91	%		1.11	%

Non-accruing loans increased significantly from year-end due to several residential mortgages in varying stages of foreclosure. Despite this increase, management considers the allowance of loan losses of $2,598,000 at September 30, 2004 to be sufficient to cover the potential loan losses.

There were no restructured loans at September 30, 2004 as compared to $500,000 at December 31, 2003. Federal regulation states that a restructured obligation that is in compliance with its modified terms and yields a market rate need not continue to be reported as a troubled debt restructured in calendar years after the year in which restructuring took place. The loans restructured during 2003 are currently in compliance with their modified terms and are yielding a market.

Liquidity, Interest Rate Sensitivity and Market Risks

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The objectives of the Company’s liquidity management policy include providing adequate funds to meet the needs of depositors and borrowers at all times, as well as providing funds to meet the basic needs for on-going operations of the Company and regulatory requirements. The Company’s liquidity position decreased from 27.41 percent at December 31, 2003 to 17.36 for the period ended September 30, 2004. The decrease resulted from $16.3 million increases in loans outstanding, which were funded from cash and cash equivalents and deposit growth. The current position is adequate to meet the immediate funding needs. In September the Company adopted a Liquidity Improvement Plan to improve the liquidity position.

The Company places great significance on monitoring and managing its asset/liability position. The Company’s policy for managing its interest margin (or net yield on interest-earning assets) is to maximize net interest income while maintaining a stable deposit base. The Company’s deposit base has not historically been subject to the levels of volatility experienced in national financial markets in recent years; however, the Company does realize the importance of minimizing such volatility while at the same time maintaining and improving earnings. Gap analysis, a common method historically used to estimate interest rate sensitivity, measures the difference or gap between the volume of interest-earning assets and interest-bearing liabilities repricing over various time periods. However, this method addresses only the magnitude of funding mismatches and does not address the magnitude or relative timing of interest rate changes. Therefore, management prepares on a quarterly basis earnings projections based on a range of interest rate scenarios of rising, flat and declining rates in order to more accurately measure interest rate risk.

Interest-bearing liabilities and the variable rate loans are generally repriced to current market rates. The Company’s balance sheet is liability-sensitive, meaning that in a given period there will be more liabilities than assets subject to immediate repricing as the market rates change. Because most of the Bank’s loans are fixed rate mortgages, they reprice less rapidly than rate sensitive interest-bearing deposits. During periods of rising rates, this results in decreased net interest income. The opposite occurs during periods of declining rates.

In addition to the gap analysis described above, the Company uses a modeling technique which projects net interest income under varying interest rate scenarios and the theoretical impact of immediate and sustained rate changes referred to as “rate shocks.” “Rate shocks” measure the estimated theoretical impact on the Bank’s tax equivalent net interest income and market value of equity from hypothetical immediate changes in interest rates as compared to the estimated theoretical impact of rates remaining unchanged. The prospective effects of these hypothetical interest rate changes are based upon numerous assumptions including relative and estimated levels of key interest rates.

The Company has not experienced a change in the mix of its rate-sensitive assets and liabilities or in market interest rates that it believes would result in a material change in its interest rate sensitivity since reported at December 31, 2003.

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Item 3

Controls and Procedures

The Company maintains a system of internal controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. The Company’s Board of Directors, operating through its audit committee, which is composed entirely of independent outside directors, provides oversight to the Company’s financial reporting process.

The Company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of the end of the period covered by this Report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

Other Information

ITEM 1. Legal Proceedings:    Not applicable

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds:    Not applicable

ITEM 3. Defaults upon Senior Securities: Not applicable

ITEM 4. Submission of Matters to a Vote of Security Holders:

ITEM 5. Other Information: Not applicable

ITEM 6. Exhibits

(a) Exhibits

Exhibit (3)(i) Articles of Incorporation of M&F Bancorp, Inc., incorporated by reference to Exhibit (3) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999.

Exhibit (3)(ii) Amended and Restated Articles of Incorporation of M&F Bancorp, Inc., incorporated by reference to Exhibit (3)(i) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 15, 1999.

Exhibit (3)(iii) Articles of Amendment of M&F Bancorp, Inc. approved by the Company’s shareholders on May 3, 2000

Exhibit (3)(iv) Bylaws of M&F Bancorp, Inc., incorporated by reference to Exhibit (3) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999.

Exhibit (3)(v) Amended and Restated Article III, Section 5 of the Bylaws of M&F Bancorp, Inc., adopted by the shareholders of M&F Bancorp, Inc. on April 30, 2002, incorporated by reference to Exhibit 3(iii) to the Form 10-QSB for the quarter ended March 31, 2002 filed with the Securities and Exchange Commission on May 14, 2002.

Exhibit (4) Specimen Stock Certificate incorporated by reference to Exhibit (4) to the Form 10-KSB for the fiscal year ended December 31, 2000 filed with the Securities and Exchange Commission on April 2, 2001.

Exhibit (10)(a) Employment Agreement between Mechanics and Farmers Bank and Lee Johnson, Jr. incorporated by reference to Exhibit 10(a) to the Form 10-QSB for the quarter ended September 30, 2000 filed with the Securities and Exchange Commission on November 9, 2000.

Exhibit (10)(b) Retention Bonus Agreement between Mechanics and Farmers Bank and Fohliette Becote incorporated by reference to Exhibit 10(b) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999.

Exhibit (10)(c) Retention Bonus Agreement between Mechanics and Farmers Bank and Walter D. Harrington incorporated by reference to Exhibit 10(c) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999.

Exhibit (10)(d) Retention Bonus Agreement between Mechanics and Farmers Bank and Harold G. Sellars incorporated by reference to Exhibit 10(d) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999.

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Exhibit (10)(e) Retention Bonus Agreement between Mechanics and Farmers Bank and Elaine Small incorporated by reference to Exhibit 10(e) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999.

Exhibit (10)(f) Supplemental Executive Retirement Plan of Mechanics and Farmers Bank incorporated by reference to Exhibit 10(f) to the Form 10-KSB for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission on March 31, 2004.

Exhibit (31.1) Certification of Lee Johnson, Jr.

Exhibit (31.2) Certification of Fohliette W. Becote

Exhibit (32) Certification Pursuant to 18 U.S.C. Section 1850

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

M&F Bancorp, Inc.
(Registrant)
Date: November 12, 2004
By:	/s/ Lee Johnson Jr.
	Lee Johnson, Jr.
	President/Chief Executive Officer
By:	/s/ Fohliette W. Becote
	Fohliette W. Becote
	Secretary/Treasurer

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